All posts tagged tax on banks

Jose Manuel Barroso, the European Union Commission president, gave further succor Wednesday to a plan that has recently been on life support–the financial transaction tax.

Despite fierce resistance from the U.K., Mr. Barroso reiterated long-held plans to introduce an EU-wide levy. It has been dubbed the Tobin tax after American economist James Tobin proposed a tax on foreign-exchange transactions in the 1970s to dampen down currency speculation.

Calling on banks to “make a contribution back to society”, Mr. Barroso said Europe “faced its greatest challenge”.

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The International Monetary Fund can call as loudly as it likes for taxes on banks but that doesn’t mean that G-20 countries will agree on the scope or quantum of such a tax. Countries such as Sweden have already started to make their own arrangements in the absence of international agreement, and the U.S. is also moving in that direction.

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An anti-IMF protestor

Last weekend’s meeting of G-20 finance ministers was designed to make policy for heads of government to discuss at a summit in June. But the finmins failed to agree on key parts of the bank tax policy–what to tax and what to do with the money once it’s raised. It doesn’t get much more basic than that.

Gaining most support is the U.S. proposal to impose a 15 basis-point tax on balance sheet liabilities less capital and insured deposits with adjustments for repos and insurance reserves. Analysts at Keefe, Bruyette & Woods estimate this would cost the European bank sector€ 19 billion and between 6% and 10% of normalized profits. “At the more extreme end of possible outcomes, it would reduce our sector normalised profitability by 1.6pp to 14.5%, assuming none of the burden is passed to customers,” KBE adds. (It will be, of course.)

The IMF proposal is for a flat-rate tax at first, which could then be adjusted for the “riskiness and systemicness” of financial institutions.